Global Commodity Watch

Submitted by John Baffes
On Fri, 10/15/2010

co-authors: Betty Dow

Non-energy commodity prices in September rose for the third straight month, up 3.9 percent, due to supply constraints and a weakening U.S. dollar—down 1.5 percent versus the euro. For the first nine months of the year, non-energy prices are up 17.9 percent, with large gains in iron ore and fertilizers.

Indices of Nominal US$ Prices (2000=100)
Source: The World Bank

Crude oil prices increased marginally in September, up 0.4 percent, averaging $76.1/bbl which is slightly below the average of the past year. Prices have been supported by strong demand and OPEC production restraint, but large stocks and non-OPEC supply gains have prevented prices from moving higher on a sustained basis this year. In early October, however, oil prices rose above $83/bbl in part due to depreciation of the dollar (the price in euros is little changed). Prices have been pulled higher by strong diesel transport demand in the U.S., German consumer restocking of heating oil ahead of winter, and a crippling strike at France’s Mediterranean oil port. OPEC meets October 14th, and the group is not expected to alter crude oil output levels.

Natural gas prices in the U.S. dropped 9.3 percent in September to $3.9/mmbtu. This level is less than half Europe’s import price and one-third Japan’s delivered LNG price—where gas imports are indexed to oil prices. U.S. prices have been weighed down by steady growth in un-conventional shale gas production.

Agriculture prices rose 3.9 percent in September, up for a fourth straight month, and continued to be led by higher grains prices—up 11 percent. Sorghum and maize prices soared 29 and 17 percent, respectively, partly as a lagged response to tighter conditions in wheat markets. (Grains prices continued to rise in early October on lower USDA yield estimates.) Sugar prices jumped 22 percent due to unfavorable weather conditions in a number of producing countries, e.g., Russia and Pakistan, and concerns about dry weather in Brazil. Cotton prices rose 16 percent on low stocks, weather-related damage to this season's crop in Pakistan, and harvest delays in India and China.

Indices of Nominal US$ Prices (2000=100)
Source: The World Bank

Base metals prices surged 5.3 percent in September, up for the third straight month, on lower inventories and supply constraints, notably for tin and copper. The largest price increase was for the precious-metal silver, up 11 percent, due to strong investment demand and macroeconomic-financial-currency concerns that have prompted investors to seek physical commodity assets, such as precious metals that are relatively easily stored. Tin prices rose 9 percent on a further decline in inventories, strong demand, and a production fall in Indonesia due to heavy rains. Copper prices rose 6 percent on a steady decline in stocks, stagnant mine production, and concerns about future supply growth needed to meet rising demand.